Jio’s Potential Rs.935,000 Crore Valuation at IPO: What Jefferies Says?
Jefferies a well-known foreign brokerage, recently shared its insights on public listing prospects of Reliance Jio Infocomm (Jio), telecom arm of Reliance Industries Ltd (RIL). According to Jefferies, Jio could be valued at $112 billion around Rs.9.35 lakh crore upon listing.
Two Listing Scenarios
Jefferies outlined two possible routes for Jio’s listing.
1. Initial Public Offering (IPO) Route: This involves offering shares to the public for the first time. Jefferies mentioned that RIL can meet IPO requirements by listing just 10% of Jio’s stake. As Jio has completed its major capital expenditure (capex) phase. The entire IPO could be Offered for Sale (OFS) by minority shareholders.
2. Vertical Spin-Off Route: This method involves creating a separate entity for Jio and listing it on the stock market. RIL shareholders would receive shares in the new Jio entity proportional to their existing holdings. Jefferies noted that RIL investors prefer this route. It avoids holding company (holdco) discount which ranges from 20-50% for listed subsidiaries.
Minority Shareholders and Retail Investors
Jio currently has 33.7% minority shareholders. By listing 10% of Jio’s stake, RIL can fulfill the IPO requirement. However, 35% of IPOs are typically reserved for retail investors. This might need significant participation from them. If the retail portion is undersubscribed. It can be allocated to High Net Worth Individuals (HNI) or Qualified Institutional Buyers (QIB) based on their oversubscription.
Control and Value Concerns
Jefferies highlighted that after the IPO, RIL would still retain majority control over Jio. However, the Indian stock market often applies a holdco discount to the parent company’s fair value. This is due to its ownership in the subsidiary and discounts can range from 20-50%.
In the vertical spin-off case, this discount would be avoided by RIL. But would end up with a lower stake in Jio. Post spin-off, RIL’s stake in Jio would be 33.3%. To address lower control, RIL could buy some shares from private equity funds after the spin-off.
Implications for RIL’s Valuation
Jefferies stated that assuming Jio’s spun-off fair value for RIL would be Rs.3,580 per share. This indicates a 15% upside. If Jio goes IPO route RIL’s fair value would be Rs.3,365 per share. This is considering a base case holdco discount of 20%.
Investor Concerns
Jefferies noted that investors are mainly concerned about the holdco discount which is steeper at 50-70% for conglomerates in Korea and Taiwan. Moreover, the large mobilization needed from retail investors for IPO is another challenge.
Whether through an IPO or a vertical spin-off Jio’s public listing could unlock significant value for RIL. It would benefit its shareholders. The decision on which route to take depends on factors like control and also on value and investor preferences. A possible listing is anticipated in 2025. It marks a significant milestone for Jio and RIL.
